I like this question. If I had to offer a response from econ 101:
Suppose people love eating a certain endangered species of whale, and that people would be sad if the whale went extinct, but otherwise didn’t care about how many of these whales there were. Any individual consumer might reason that their consumption is unlikely to cause the whale to go extinct.
We have a tragedy of the commons, and we need to internalize the negative externalities of whale hunting. However, the harm is discontinuous in the number of whales remaining: there’s an irreversible extinction point. Therefore, Pigouvian taxes aren’t actually a good idea because regulators may not be sure what the post-tax equilibrium quantity will be. If the quantity is too high, the whales go extinct.
Therefore, a “cap and trade” program would work better: there are a set number of whales that can be killed each year, and firms trade “whale certificates” with each other. (And, IIRC, if # of certificates = post-tax equilibrium quantity, this scheme has the same effect as a Pigouvian tax of the appropriate amount.)
Similarly: if I, a house member, am unsure about others’ willingness to pay for risky activities, then maybe I want to cap the weekly allowable microcovids and allow people to trade them amongst themselves. This is basically a fancier version of “here’s the house’s weekly microcovid allowance” which I heard several houses used. I’m protecting myself against my uncertainty like “maybe someone will just go sing at a bar one week, and they’ll pay me $1,000, but actually I really don’t want to get sick for $1,000.” (EDIT: In this case, maybe you need to charge more per microcovid? This makes me less confident in the rest of this argument.)
There are a couple of problems with this argument. First, you said taxes worked fine for your group house, which somewhat (but not totally) discredits all of this theorizing. Second, (4) seems most likely. Otherwise, I feel like we might have heard about covid taxes being considered and then discarded (in e.g. different retrospectives)?
EDIT: In this case, maybe you need to charge more per microcovid? This makes me less confident in the rest of this argument.
Yeah, this. The beautiful thing about microCOVIDs is that because they are probabilities, the goodness of an outcome really is linear in terms of microCOVIDs incurred, and so the “cost” of incurring a microCOVID is the same no matter “when” you incur it, so it’s very easy to price. (Unlike the whale example, where the goodness of the outcome is not linear in the number of whales, and so killing a single whale has different costs depending on when exactly it happens.)
You might still end up with nonlinear costs if your value of money is nonlinear on the relevant scale, e.g. maybe the first $1,000 is really great but the next $10,000 isn’t 10x as great, and so you need to be paid more after the first $1,000 for the same number of microcovids, but I don’t think this is really how people in our community feel?
I guess another way you get nonlinear costs is if you really do need to incur some microcovids, and then the amount you pay matters a lot—maybe the first $10 is fine, but then $1,000 isn’t, because you don’t have a huge financial buffer to draw from, so while the downside of a microcovid stays constant, the downside of paying money for it changes. I didn’t get the sense that this would be a real problem for most group houses, since people were in general being very cautious and so wouldn’t have paid much, but maybe it would have affected things. Partly for this reason and partly out of a sense of fairness, at my group house we didn’t charge for “essential” microcovids, such as picking up drug prescriptions (assuming you couldn’t get them delivered) or (in my case) an in-person appointment to get a visa.
I like this question. If I had to offer a response from econ 101:
Suppose people love eating a certain endangered species of whale, and that people would be sad if the whale went extinct, but otherwise didn’t care about how many of these whales there were. Any individual consumer might reason that their consumption is unlikely to cause the whale to go extinct.
We have a tragedy of the commons, and we need to internalize the negative externalities of whale hunting. However, the harm is discontinuous in the number of whales remaining: there’s an irreversible extinction point. Therefore, Pigouvian taxes aren’t actually a good idea because regulators may not be sure what the post-tax equilibrium quantity will be. If the quantity is too high, the whales go extinct.
Therefore, a “cap and trade” program would work better: there are a set number of whales that can be killed each year, and firms trade “whale certificates” with each other. (And, IIRC, if # of certificates = post-tax equilibrium quantity, this scheme has the same effect as a Pigouvian tax of the appropriate amount.)
Similarly: if I, a house member, am unsure about others’ willingness to pay for risky activities, then maybe I want to cap the weekly allowable microcovids and allow people to trade them amongst themselves. This is basically a fancier version of “here’s the house’s weekly microcovid allowance” which I heard several houses used. I’m protecting myself against my uncertainty like “maybe someone will just go sing at a bar one week, and they’ll pay me $1,000, but actually I really don’t want to get sick for $1,000.” (EDIT: In this case, maybe you need to charge more per microcovid? This makes me less confident in the rest of this argument.)
There are a couple of problems with this argument. First, you said taxes worked fine for your group house, which somewhat (but not totally) discredits all of this theorizing. Second, (4) seems most likely. Otherwise, I feel like we might have heard about covid taxes being considered and then discarded (in e.g. different retrospectives)?
Yeah, this. The beautiful thing about microCOVIDs is that because they are probabilities, the goodness of an outcome really is linear in terms of microCOVIDs incurred, and so the “cost” of incurring a microCOVID is the same no matter “when” you incur it, so it’s very easy to price. (Unlike the whale example, where the goodness of the outcome is not linear in the number of whales, and so killing a single whale has different costs depending on when exactly it happens.)
You might still end up with nonlinear costs if your value of money is nonlinear on the relevant scale, e.g. maybe the first $1,000 is really great but the next $10,000 isn’t 10x as great, and so you need to be paid more after the first $1,000 for the same number of microcovids, but I don’t think this is really how people in our community feel?
I guess another way you get nonlinear costs is if you really do need to incur some microcovids, and then the amount you pay matters a lot—maybe the first $10 is fine, but then $1,000 isn’t, because you don’t have a huge financial buffer to draw from, so while the downside of a microcovid stays constant, the downside of paying money for it changes. I didn’t get the sense that this would be a real problem for most group houses, since people were in general being very cautious and so wouldn’t have paid much, but maybe it would have affected things. Partly for this reason and partly out of a sense of fairness, at my group house we didn’t charge for “essential” microcovids, such as picking up drug prescriptions (assuming you couldn’t get them delivered) or (in my case) an in-person appointment to get a visa.
Another way costs are nonlinear in uCOVIDs is if you think you’ll probably get COVID.
Yeah, fair point, the linearity only works as long as you expect probabilities to remain small.
(Which, to be clear, is something you should expect, in the context of most EA / rationalist group houses.)